Does BRRRR actually work?

10 Replies

I am currently using hardmoney to do a flip. As #2 exit strategy, I was thinking of renting out the property and and refinance to get my cash out but this seam way more complicated.

I talked to several bank about refinancing out of my hard money. Some will only refinance based on actual cost instead of ARV. Other will only refinance as a commercial loan. These would either require me to leave my money in the deal or wipe out my cash flow. Barely anyone would do a straight 30yr conventional.

I also learn that my personal umbrella won't cover my LLC plus getting insurance under LLC becomes another drama.

I am a small time real estate investor and having a LLC just complicates my life. The only reason I have an LLC is because hardmoney lender requires me to. It looks like BRRRR only work when buying in your name/cash/conventional rather than LLC/hard money.

@Jay Thomas I do BRRRR by buying properties in my own name and I obtain the hard money loan with the property in my name. So you are correct in that assessment, conventional loans are cheaper as far as interest goes. It also has more hoops, like waiting 6mo for seasoning and you personally qualifying for the loan.

Typically, you just need to find the right conventional lender. There are some that will refi using the ARV instead of the purchase price after 6 mos. So you wait the 6 mos and then you quit claim the property out of the llc into your personal name as part of the closing process on the new loan.

But you are correct. BRRR is a bit trickier to do when you're dealing with 20 or 25 year amortizations and cash flow. Shop the amortization period around though. Some local banks will amortized to 25 and thats a big difference.

i.e. On a typical 110k loan which is about where I'm usually at these days, the difference between a 20 yr amort and 25 yr amort is about $80 a month.  You'll be hard pressed to find 30 yr amort but some local banks will do them every so often. For the most part, that 25 is typically doable.

In the meantime, if you have conventional spots, I definitely recommend using those spots up first. You just need to find the right one. Find one that will season the deal after 6 months so they will use the ARV instead of the purchase price. You won't be able to pull your money back out based on 75% of the purchase price. You'll obviously need the 75% of the new appraisal value.

And then you'll just have to agree to quit claim the property back into your name at the closing as conventional loans require the loan to be under an individual name.

BRRR works. Just to get a lot deeper into the weeds with the financing than most people might have you believe. When I give advice to new investors, the first thing I tell them is one of the most time consuming pieces of investing is the financing part. Most don't believe me - until they start trying to scale. Then they get it..... :-)

Thank you for your detailed explanation @Mike H. . Will hard money lender be ok with me quit claiming the property out of the LLC my your personal name?... I still have conventional spots left but it is almost impossible for me to find deals that will qualify for conventional financing. That's why I'm trying out hard money route.

You aren't going to quit claim deed it into your personal name until the closing of your refi. 

So you will close for the purchase with the hard money lender under llc.
When you close for the refi with the conventional lender, you will quit claim the
property into your name personally and the title company will record the quit claim deed
and then their mortgage. 

Hard money lender won't have a say nor will they care as there is no risk to them given they are being paid off as part of the closing.

The BRRRR strategy makes sense to me, but I have had challenges getting the refi done, especially being self-employed with no W2, I qualify for so many deductions that the debt/income ratios look out of whack compared to a W-2 employee

@Robert Naini

Yea. Its tough to qualify for conventional mortgages for many self employed people.

But you can still do the BRRR strategy as long as your income is there with some common sense approach. You just wont' be able to get the conventional loan financing to do it with.

You'll need to talk to local lenders and ask for the commercial loan dept (i.e. portfolio side). You won't get 30 yr mortgages and your rate will be about a half point higher but you can still do the BRRR strategy. Even better is that commercial side of the house won't have any seasoning requirements.

So you could buy a house, rehab it in 6 weeks and turn around and refi right away. They won't require you to have any seasoning. Now some banks will allow cash out refi's and others wont'. So you'll just have to shop around.  But they're out there.  Its also the reason why hard money is a nice option.

Once you get a handful of deals under your belt, you can possibly find a hard money lender that will do 100% of the purchase and 100% of the rehab. Then do your rate/term refi's with local lenders and can do the true BRRR strategy so you can get all your money back out - save maybe the points and closing costs.....

I just completed my first BRRR on my duplex. This was my second attempt. The first time I went to bankrate.com and had some banks compete for my business. After finding a bank that would only do 70% LTV due to Fannie Mae, the appraiser only came out at 186k and I owe 126k. The comps my realtor pulled showed that my duplex was worth 230k. We tried to challenge the appraisal but he said those comps that are priced higher are they n better shape. Total bs.

So 6 months later I found a small local bank that does 15 year commercial loans and keep it as a portfolio loan. Their appraiser came in at 235k. The loan ended up at 76% LTV, and a 4.25% interest rate. I was able to cash out refi and pull out 48k. So check with smaller banks.
Now I’m looking for the next duplex.

@Mike H.    

@Marcus Johnson

Thanks for the feedback and comments, I have three free and clear properties and I am looking for local banks that can help

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